Final answer:
The governance mechanism regarded as the option of last resort is the takeover constraint. It is employed when other governance methods, specifically internal governance like the board of directors, fail to adequately oversee company management and operations, potentially leading to external intervention to protect shareholder interests.
Step-by-step explanation:
The takeover constraint is regarded as the option of last resort in the governance mechanisms. This is typically the mechanism that comes into play when other forms of governance, such as the board of directors, fail to adequately oversee the company's executives and operations.
The board of directors is considered the first line of defense in corporate governance, tasked with overseeing the company's top executives and ensuring proper management and strategy implementation. If the board fails, and significant issues continue to exist, external parties such as other corporations or investors can initiate a takeover. The intent behind a takeover is generally to reorganize the company, replace ineffective management, and restore shareholder value.
Corporate governance failures, like those seen with Lehman Brothers, illustrate how important each layer of oversight is to providing accurate financial information to investors and maintaining the integrity of financial markets. When internal governance fails, mechanisms like the takeover constraint may be the last resort to correct the course of a company.